Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TTM Technologies Inc (TTMI, Financial) reported non-GAAP earnings per share above the high end of the guided range, demonstrating solid year-on-year growth.
- Revenues were at the high end of the previously guided range, showing a return to year-on-year growth driven by strong demand in aerospace and defense and data center computing markets.
- The aerospace and defense market, which constituted 46% of revenues, continues to show solid demand with a positive book-to-bill ratio and a substantial program backlog of approximately $1.38 billion.
- The new highly automated PCB manufacturing facility in Penang, Malaysia, is progressing well with ongoing customer audits and qualification sampling, expected to contribute to revenues in the second half of the year.
- TTM Technologies Inc (TTMI) successfully consolidated manufacturing operations by closing three facilities, which is expected to improve plant utilization, operational performance, and profitability.
Negative Points
- Lower than expected results from the medical, industrial and instrumentation, and automotive end markets partially offset the revenue growth.
- The automotive market experienced a year-over-year decline due to continued inventory adjustments and soft demand at several customers.
- Networking end market demand remained soft as customers continued to focus on inventory digestion, contributing only 6% of revenue.
- PCB capacity utilization in Asia Pacific and North America remained relatively low, indicating underutilization of manufacturing capabilities.
- Operational challenges including supply chain issues continue to impact the aerospace and defense segment, creating a headwind of about $8 million quarterly.
Q & A Highlights
Q: Regarding your guidance, it implies that gross margin will be up over 19% sequentially. Is that related to mix, or are you also seeing benefits from the closures of some facilities in the US and Hong Kong?
A: (Daniel Boehle - CFO, EVP) It's a combination of factors. There's a bit of mix, and we are seeing benefits from the closures of the three plants from last year. Additionally, between Q1 and Q2, we got more efficiencies in the factory. Q1 has the impact of the Chinese New Year, so with lower volume in AP, we tend to get lower efficiencies, which naturally improves from Q1 to Q2.
Q: Could you elaborate more on the significant growth you're seeing in the datacom area with hyperscale customers?
A: (Thomas Edman - CEO) In terms of sequential, it's really flat sequentially in data center computing. We're seeing strength in generative AI, which continues to be about 50% of that data center demand. It remains relatively concentrated. We're looking at adding incremental capacity to meet scaling demand in the second half of the year.
Q: Are you seeing some improvement in the auto and MII markets?
A: (Thomas Edman - CEO) In auto, we are looking at being sequentially up, which is encouraging. In the medical, industrial, instrumentation area, we are seeing incremental return of growth, particularly in semiconductor capital equipment, which is helping on the sequential demand side.
Q: It looks like you're anticipating a sequential decline in A&D. Can you provide some color on that?
A: (Thomas Edman - CEO) The Q1 A&D end market outperformed our expectations. As we look at Q2, we're expecting more of a normal quarter there in A&D. We're expecting that the facilities we shut down will help to improve the A&D revenues as we go into Q3 and Q4.
Q: What drove the increase in OpEx year over year, and what should we expect going forward?
A: (Daniel Boehle - CFO, EVP) There were a few one-off items in Q1, including personnel related and healthcare related true-ups. With regards to the Syracuse expansion, we had about $1.5 million application fees paid in Q1. These are one-offs and will not recur. Even with the headwind from Penang, we're still up 100 basis points operating margin year over year.
Q: Could you provide the lifetime value of the automotive program wins you secured in the quarter?
A: (Thomas Edman - CEO) Not a great quarter in regards to automotive. We had about $20 million in wins in terms of program wins in Q1. This is quite a difference from a year ago, which was $267 million. Our customers are dealing with market turbulence and withholding packages as they try to get more certainty about production starts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
